Shooting up across the island, solar farms are raking it in, boasting profit margins that would make John D Rockefeller go green with envy. The public has noticed, and so have MPs, though talk of taxing these ‘windfall earnings’ seems to have amounted to political theatre. But what allows these operators to earn big is a more nuanced question, and it turns out that the state-run electricity utility is partly – though unwittingly – responsible.

Private-run photovoltaic (PV) farms sell energy to two types of ‘customers’ – the Electricity Authority of Cyprus (EAC) and private buyers, usually large businesses in the vicinity.

When they sell to the EAC, they do so according to fixed feed-in tariffs. The tariff is 11 cents per kilowatt-hour, under a decision issued by the energy regulator.

But when selling to private buyers, it’s a whole other ballgame. Here the prices aren’t fixed and can vary from supplier to supplier and from contract to contract, but market chatter suggests an average going rate of around 25 cents per kilowatt-hour.

How much does it cost them to generate electricity? These numbers are not in the public domain. But if it costs the EAC five cents per kilowatt-hour to generate power from PV, it’s safe to assume that roughly the same applies for the independent renewables producers.

“The actual cost for the privately-owned solar farms likely ranges from five to seven cents per kilowatt-hour,” says energy researcher Constantinos Hadjistassou.

So they spend five to seven cents to generate, then charge 25 cents. Pretty impressive.

A great deal has been said about the private PV farms, their ‘super-profits’, even the loaded word ‘greed’ has been tossed around. Some have likened it to a money-printing exercise.

It’s a growing business, and business is booming. For example, the big player on the scene is Bioland Energy. They operate seven PV parks at Alaminos, Meneou, Alethriko, Aradippou, Kofinou, Athienou and Troulli. Plus, more parks are under construction. Other companies in the industry are Cyfield and Zorbas.

This is where Hadjistassou identifies a potential problem: that the market has been ‘cornered’, so to speak, by a very small number of players. They get long-term permits, and occasionally get to operate on state land for a low lease.

What’s more, leases for solar parks are granted on state land which is agricultural and highly fertile.

On the other hand, the analyst recognises that the issue isn’t as cut and dry: after all, these are private investors who obviously want to recoup their investment. The capital expenditures involved are considerable. Although the Cyprus Mail was not able to get numbers specific to the parks in Cyprus, one website states that the typical cost of building a one-megawatt solar power plant would be between $890,000 and $1.01 million. Another website says at least €400, 000 to €500,000 per megawatt.

The private RES producers also have to contend with the situation that anywhere from 20 to 30 per cent of their output is ‘rejected’ by the grid due to its constraints.

“Bottom line”, says Hadjistassou, “I think the energy regulator needs to re-set the rules of the game. We need competitive bidding for new RES projects.”

We queried the EAC, the Transmission System Operator (TSO) and the energy regulator (Cera) on these matters.

According to the EAC, the private supply companies sell energy produced by their own parks or purchased from other private PV parks in bilateral contracts.

“The prices to the consumer are not regulated or made public and are therefore not disclosed,” the EAC said. But it added: “However, the information in the market is that these private agreements use the EAC prices as a benchmark and are set approximately at 10 per cent, or occasionally 20 per cent, below the going EAC price.

“Most interesting, though unverified, is the information that these prices are also indexed on the EAC fuel index. The installed capacity of the PV generation which is currently traded privately is around 300 megawatts.”

Hypothetically, then, if the EAC invoices its electricity generated by conventional means at 30 cents per kilowatt-hour, the private PV operators would sell at 27 cents – or 10 per cent less.

“One issue that we can point to”, says the EAC, “is the transitional market regime, which prioritises the growth of independent suppliers over the cost to the consumer. Market forces and incentives are clearly at play here. If an independent supplier can sell all its available energy at a minimal 10 per cent discount, relative to EAC’s price, why would they do otherwise?”

The utility went on to say: “Even seemingly well-intentioned interventions have had a negative effect in that respect. The capping of the price paid by EAC to RES generators at 11 cents has incentivised private producers to break their contracts with EAC and seek higher prices in the transitional market.”

Here Hadjistassou weighs in: “If you’re a private PV business and can sell for just a little less than the EAC does, you absolutely will, because that’s enough to undercut the EAC.”

But the expert also draws attention to how private RES suppliers seem to peg their prices to the EAC fuel index. Meaning that, if the EAC index were lower, the private PV operators might adjust downward accordingly. In this narrow sense, the EAC may be said to be “part of the problem”.

And the data we obtained from the various agencies does show that the energy produced by private solar parks and which gets fed into the EAC grid, under the National Grants Scheme, accounts for a minority. The biggest slice of the pie involves the electricity that private PV operators sell to private buyers.

The installed capacity of renewables under the National Grants Scheme comes to 76 megawatts of PVs, 157 megawatts of wind parks, and nine megawatts of biomass.

By comparison, and going with the numbers given to us by the energy regulator, the total capacity of all private-sector players amounts to 280 megawatts (August 2024 data).

That’s a big chunk, considering that average electricity consumption on the island throughout the year hovers at 650 to 670 megawatts.

So what is the transitional market regime the EAC was referring to? As the energy regulator explains it:

“There is no formal rule to set the price that PV systems sell on the market. The current transitional market is not actually a proper market, but an arrangement based on monthly clearing to bridge the gap until the operation of the liberalised market where clearing will be done on a half-hourly basis. The transitional arrangement works on private Power Purchase Agreements (PPAs) where the price is freely set by the contracting parties.”

Where does the EAC stand in the PV business? The organisation currently owns and operates five PV parks. The first one, in Tseri, has a capacity of 3 megawatts, and was installed in 2014. It operates under a fixed tariff of 8.6 cents per kilowatt-hour, through the energy ministry’s RES and Energy Conservation Fund.

The other four PV parks have a total capacity of 20 megawatts, and their energy is blended in the energy mix of the EAC Generation Department. These PV parks produce energy at about 5 cents per kilowatt-hour and, says the EAC, “therefore contribute, even if slightly, to the reduction of the EAC’s cost to the consumer.”

According to the utility, it’s additionally making efforts to increase its own capacity. It has applied to the regulator for permission to contract bilateral agreements through competitive bidding with independent private PV producers to reduce the cost of the energy mix.

“However, to this date Cera has not granted permission.”